To be clear right off the bat, I have not been a big General Electric (NYSE:GE) bull over the years. That kept me out of the massive decline in GE stock, as it fell from $30 to sub-$10. On the other hand, though, that also kept me from being long from the $5 to $6 area. This was all before the company’s 1-for-8 reverse stock split, which went into effect on Aug 2.
The General Electric (GE) logo on a building
Source: Sundry Photography / Shutterstock.com
The company’s most recent earnings report had some good news packed in. Combined with the “return to normal” we’re seeing, that could bode well for GE. At the same time, a spike in novel coronavirus cases — led by that pesky Delta variant — is a major cause for concern.
We don’t typically think of General Electric as a consumer-travel company. However, its Aviation unit depends heavily on demand for new aircraft. If the travel industry remains under pressure, so too will one of GE’s largest businesses.
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So, there’s a lot of unknowns here, but one thing is crystal clear: Covid-19 has made investing a real pain in the butt. That said, let’s do the best we can and look at the three reasons to buy GE stock right now.
GE Stock and the Return to Normal
As I just touched on before, GE is more of a consumer-travel business than many people realize. Not that planes are only used for traveling (they’re also used for commerce and logistics), but that’s a large driver for the aerospace industry.
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When Covid-19 hit, airlines were hammered as passenger traffic evaporated. Now, that traffic is coming back and airlines are ordering more aircraft. For instance, Southwest Airlines (NYSE:LUV) and United Airlines (NASDAQ:UAL) have both submitted new orders with Boeing (NYSE:BA).
In fact, Boeing just reported its first quarterly profit in almost two years, indicating some return to growth. That bodes well for GE stock, with the company making engines for some of Boeing’s aircraft. In the end, aerospace is GE’s largest business unit. If that can regain momentum, then the company can regain momentum as well.
Case in point? In the most recent quarter, Aviation operating profit of $176 million came in well ahead of the $687 million loss GE reported in the same quarter a year ago. Of course, that’s a double-edged sword, too — if this unit comes back under pressure, GE stock may as well.
Recent Earnings Momentum
According to this company’s most recent quarterly results, things are looking good. Or should we say, better.
On Jul. 27, General Electric delivered a top- and bottom-line earnings beat. Revenue grew 3% year-over-year (YOY) to about $18.3 billion and beat expectations. The year-over-year growth snapped a streak of decelerating revenue.
Additionally, a couple of quarters ago, management wowed Wall Street with its industrial free cash flow outlook. Cash flow has been a main focus among investors and GE’s critics, with the latter not expecting the company to deliver. Instead, management just upped its outlook.
CEO Larry Culp and the rest of GE leadership now expect full-year industrial free cash flow of $3.5 billion to $5 billion. That’s up from their prior outlook of $2.5 billion to $4.5 billion. So, cash flows are moving in the right direction and if that remains the case — such as a strong free-cash flow guide for 2022 — then GE stock may continue to climb.
The GE Stock Chart Is ImprovingA daily chart of GE stock
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Source: Chart courtesy of TrendSpider
Speaking of price, the GE stock price exploded off its Q4 lows in October, running from about $48 at the beginning of the month up past $90 in December. In late January, shares tagged $98 — albeit only momentarily — as the stock officially doubled from the recent low.
Now, though, $98 continues to act as support while the $115 area is acting as resistance. In other words, shares have been range-bound, as the stock chops between these two levels and mostly hovers between $100 and $110.
GE stock is struggling to reclaim its 50-day moving average despite the solid quarterly results, although the report was enough to send shares above downtrend resistance (blue line).
From here, let’s see if the 10-day and 21-day moving averages can act as support and help elevate GE stock north of $105. Of course, the broader market will likely play a role in how GE trades. If the market moves lower, the stock may as well, putting that $98 level and the 200-day moving average in play as a potential dip-buying spot.
Ultimately, we’re looking for a breakout over $115, potentially putting $130-plus in play.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
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